Published in Institute's Journal July 2001 

DIFFERENCE BETWEEN TAX & FEE AND GUIDELINES FOR 

DRAFTING OF FISCAL LEGISLATION 
Bharat Ji Agrawal Senior Advocate Allahabad High Court 
The  tax  is  an  imposition  made  for  the  public  purpose,  without  reference  to 
any  services  rendered  by  the  State  or  any  specific  benefit  to  be conferred upon the 
tax  payer.  The  object  of  levy  of  tax  is  to  raise  the  general  revenue.  On  the  other 
hand,  a  fee  is  a  payment  levied  by  the  State  in  respect  of  services  performed  by  it 
for  the  benefit  of  the  individual.  It  is  levied  on  a  principle  just  opposite  to  that  of 
tax  while  a  tax  is  paid  for  the  common benefit conferred by the Government on all 
tax  payers,  a  fee  is  a  payment  made  for  some  special  benefit  enjoyed  by  the payer 
and the payment is shown proportionately to the special benefit. 
The  money  raised  by  a  fee  is  set  apart  and  appropriated  specifically  for  the 
purpose  of  the  services  for  which  it  has  been  imposed  and  it  is  not  merged  in  the 
general  revenue  of  the  State.  If  the  special-  service  rendered  is  distinctly  and 
primarily  meant  for  the  benefit of a specific class or area, the fact that in benefiting 
the  specific  class  or  area,  the  State  as  a  whole  may  ultimately  and  indirectly  be 
benefited  would  riot detract from the character of the levy as a fee. In such a case it 
is  necessary  to  see  what  is  the primary object of the levy and the essential purpose, 
which  is  intended  to  achieve.  Its  primary  object  and  essential  purpose  must  be 
distinct  from  its  ultimate  or  incidental  results  or  consequences.  On  the  other  hand, 
if  there  is  no  strict  and  clear  nexus  between  some  special  service  and  the  levy  it 
cannot be said to be a fee. 
While  in  the  case  of  tax  there  is  no  quid  pro  quo  between  the  tax  payer  and 
the  state.  There  is  a  necessary  correlation between the fee collected and the service 
intended  to  be  rendered  as  held  by  the  Hon'ble  Supreme  Court  in  the  case of State 
of  Rajasthan  vs.  Sajjan  Lal,  AIR  1975  (Supreme  Court)  page 706, (Para 40 and 41 
),  which  has  again  been  reiterated  in  Kishan  Lal  vs.  State  of  Haryana  (  1993) 
Supplement 4 SCC page 461. 
The  amount  of  fee  is  based  upon  the  expenses  incurred  by  the  State  in 
rendering  the  services,  though  in  the  case  of  particular  fee  the  amount  may  not  be 
arithmetically commensurate with the expenses. 
A tax is compulsory extraction of money by public authority for public 
purpose enforceable by law and is not a payment for services rendered. On the 
1 
 
other hand, fee is charged for special services rendered to individuals by some 
governmental agency. 
Ever,  the  traditional  view of quid pro quo that undergone a transformation in 
recent  years.  The  Hon'ble  Apex  Court  has  held  that  what  is  to  be  seen  for  a  fee  is 
whether  there  is  a  fair  correspondence  between  the  fee  charged  and  the  cost  of 
services  rendered  .to  the  fee  payers  as  a  class;  a  broad  co- relationship is all that is 
necessary.  Such  relationship  need  not  be  strict  and  even  a  casual  relation  may  be 
enough.  Neither  the  incidence  of  fee  nor  the  service  rendered  need  be  uniform. 
Merely  because  other  are  also getting benefited will not detract the character of the 
fee  as  held  by  Hon'ble  the  Supreme  Court  of  India  in  the  case  of  Delhi 
Municipality  vs.  Yasin,  (AIR  1983),  Supreme  Court  617,  (para  9)  and  S.G.T.  vs. 
State  of  Andhra  Pradesh,  (AIR  1983  Supreme  Court  1246)  (Para  33  &  38).  The 
same  view  has  been  reiterated in the case of M/s Kishan Lal Lakhmi Chand & Ors. 
vs.  State  of  Harayana ( 1993 Supplement 4 SCC page 461 ). However, the quid pro 
quo  would  not  necessarily be lost merely because the statute prescribes a minimum 
rate,  the  fee  such  as market fee is levied in respect of public properties for example 
public  road.  The  benefit  to  be  derived  from  fee  is  not  simultaneous  but  is deferred 
and  the  amount  collected  by  way  of  fee  is  a  result  for  future  services.  Where  the 
fee  is levied for special services the fact that others besides those paying the fee are 
also  benefited  did  not  detract  the  character  of  the  fee,  as  held by Hon'ble the Apex 
Court  in  the  case  of  ITC  vs.  State  of  Karnataka,  (1985  Supplement  SCC  476  para 
3). 
The  cases  may  arise  where  under  the  garb  of  levying  a  fee  the  Legislature 
may  attempt  to  impose  a  tax.  In  the  case  of  such  colourable  exercise  of  legislative 
power,  the  courts  would  have  to  scrutinizes  the  scheme  of  the  levy  very  carefully 
and  determine  whether  in  fact  there  is  a  co-relation  between  the  services  and  the 
levy  or  whether  the  levy  is  excessive  to  such  an  extent  as  to  be  pretence  to  a  fee 
and not a fee in reality. 
Even  though  it  is  said  that  there is no generic difference between the tax and 
a  fee  and  the  taxing  power  of  a  state  may  manifest  itself  in  different  forms  known 
respectively  as  special  assessments,  fees  and  tax.  Our  Constitution  has  for 
legislative  purposes,  made  a  distinction  between  the  tax  and  fee.  Hence  while 
drafting  the  Bill  or  making  the  legislation,  one  has  to  -keep  in  mind  the  relevant 
entries of the Constitution of India. 
The  distribution  of  the  power  to  levy  a  tax  in  not  identical,  with  that  of  the 
power  to  levy  a  fee.  Taxes  are  specifically  distributed  as  between  the  Union  and 
the  State  Legislation  by  various  entries  in  List  I  and  List  II and residuary power to 
levy  a  tax  which  is  not  enumerated  in  any  of  the  entries  under  Entry  97  of  List  I 
exclusively  for  the  Parliament.  On  the  other  hand,  entry  relating  to  fee  has  been 
specifically mentioned in the end of the 3 List I, II and III. 
2 
 
 Every  legislature has the power to levy fee which is co-extensive with power 
to  legislate  with  respect  to  substantive  matters  and  legislature  may  while  making 
law  relating  to  a  subject  matter  within  its  competence,  levy  a  fee  with reference to 
the  services  that  would  be  rendered  by  the  State  under  such  Law.  Taxes  are 
specifically  divided  between  List  I  Entries  82  to  92A  and  in  List  II  Entries  46  to 
63.  The  fees  are  however,  not  mentioned  specifically.  There  is  a  general  entry 
towards  the  end  of  each list which empowers the legislature to levy a fee in respect 
of  any  matter  over  which  it  has  legislative  power  according  to  the  relevant  List. 
The  power  to  levy  fee  is  thus  distributed  in  Entry  96  of  List  I,  66  of List II and 46 
of List III. 
The  result  is  that  power  of  legislature to levy a fee or tax is to be determined 
by  complying  different  test.  If  a  fee  is  levied  on  the  capacity  of  the  payer,  then  it 
shall  not  be  treated  as  fee  and  will  be  held  to  be  a  tax.  Similarly,  a  fee  cannot  be 
levied  for increasing the general revenue. In such a case it cannot be justified under 
any of the Entries of the Constitution of India. 
In  the  case  of  Sri  Jagnath  Ramanuj  Das  and  another  vs.  State  of  Orissa, 
(AIR  1964  SC  p.400,  para  9),  the  earliest  leading  case  of  the  Supreme  Court,  in 
para 9, Hon'ble Apex Court clearly held : 
"A  tax  is  undoubtedly  in  the  nature  of  a  compulsory  extraction of money by 
a  public  authority  for  public  purposes,  the  payment  of  which  is  enforced  by  law. 
But  the  essential  thing  in  a tax is that the imposition is made for public purposes of 
the  State  without  reference  to  any  special  benefit  to  be  conferred  upon  the  payers 
of  the  tax.  The  taxes  collected  are  all  merged  in  the general revenue of the State to 
be  applied  in  the  general  revenue  public  purposes.  Thus,  tax  is  a  common  burden 
and  the  only  return  which  the  tax  -payer  gets  is  the  participation  in  the  common 
benefits  of  the  State.  Fees,  on  the  other  hand,  are  payments  primarily  in the public 
into  but  for  some  special  service  rendered  or  some  special  work  done  for  the 
benefits  of  those from whom payments are demanded. Thus, in fees there is always 
an  element  of  'quid  pro  quo'  which  is  absent  in  a  tax.  Two  elements  are  thus 
essential  in  order  that  a  payment  may  be  regarded, as fee. In the first place, it must 
be  levied  in  consideration  of certain services, which the individuals accepted either 
willingly  or  unwillingly.  But  this  by  itself  is  not  enough  to make the imposition of 
a  fee.  If  the  payments are demanded for rendering of such services are not se a part 
are  specifically  appropriated  for  the  purposes,  but  are  merged  in  the  general 
revenue of the State to be spent for general public purposes." {para 9} 
As  mentioned  by  me  earlier,  that  the  traditional  view  that  there  must  be 
actual  quid  pro  quo  for  a  fee  has  undergone  a  sea change. In this connection I may 
refer  to  and  rely  upon  the  decision  of  Hon'ble  The  Apex  Court  In  M/s. Kishan Lal 
Lakhmi Chand & Ors. vs. State of Haryana & ors. (Judgements 
3 
 
Today) 1993 (4) SC page 426 (para 5): where it was held by Hon'ble The Supreme 
Court : 
"The  traditional  view  that  there  must  be  actual  quid  pro  quo  for  a  fee  has 
undergone  a  sea  change.  The  distinction  between a tax and fee lies primarily in the 
fact  that  a  tax  is  levied as part of a common burden, while a fee is for payment of a 
specific  benefit  or  privilege  although  the  special  advantage  is  secondary  to  the 
primary  purposes  of  regulation  in  public  interest,  if  the  element  of  revenue  for 
general  purposes  of  the  State  predominates,  the  levy  becomes  a  tax.  In  regard  to 
fee,  there  is,  and  must  always  be,  co-relation  between  the  fee  collected  and  the 
service  intended  to be rendered. In determining whether a levy is a fee, the true test 
must  be  whether  its  primary  and  essential  purposes  it  to  render specific services to 
a  specified  area  or  class;  it may be of no consequence that1he State may ultimately 
and  indirectly  be  benefited  by  it.  The  power  of  any  legislature  to  levy  a  fee  is 
conditioned  by  the  fact  that  is  must  be  "by  and  large"  a  quid  pro  quo  for  the 
services  rendered.  However,  co-  relationship  between  the  levy  and  the  services 
rendered/expected  is  one  of  general  character  and  not  of  mathematical  exactitude. 
All  that  is  necessary  is  that there should be a "reasonable relationship" between the 
levy  of  the  fee  and  the  services  rendered.  There  is  no  genetic difference between a 
tax  and  a  fee.  Both  are  compulsory  extractions  of  money  by  public  authorities. 
Compulsion  lies  in  the  fact  that  payment  is  enforceable  by  law  against  a  person in 
spite  of  his  unwillingness  or  want of consent. A levy in the nature of a fee does not 
cease  to  be  of  that  character  merely  because  there  is  an  element  of  compulsion  or 
coerciveness  present  in  it,  not  is  it  a  postulate  of  a  fee  that  it  must  have  direct 
relation  to  the  actual  service  rendered  by  the  authority  to  each  individual  nor  that 
each should obtain the benefit of the service. " 
Primarily (1) 
(2) 
(3) 
FEE 
There must be actual quid pro quo for a fee has undergone a sea changed While a 
fee is for payment of a specific benefit or privilege although the special to the 
primary purpose of regulation in public interest. In regard to fee, there is and must 
always be, correlation 
TAX 
(1) 
A tax is levied as a part of a common burden 
(2) 
If  the  element  of  revenue  for  general  purpose  of  the  State  predominates,  the  levy 
becomes a tax. 
4 
 
between the fee collected and the service intended to be rendered. 
(iv) In case of licence fee, condition of quid pro quo for a fee is not necessary. 
There is no generic difference between a tax and fee. Both are compulsory 
extractions of money by public authorities. Compulsion lies in the fact that 
payment is enforceable by law against a person in spite of his unwillingness or 
want of consent. In view of the aforesaid law laid down by Hon'ble Apex Court in 
M/s Kishan Lal Lakhmi Chand vs. State of Haryana, there may be a regulatory fee 
and a compensatory fee. In the cases of licence fee, which is a regulatory fee, the 
condition of quid pro quo is not necessary. 
"(f) Corporation of Calcutta and Anr. vs. Liberty Cinema (AIR 1965 SC 1107). Fee 
for licences and fee for services rendered are contemplated as different kinds of 
levy. The former is not intended to be a fee for service rendered. This is apparent 
from a consideration of Article 110(2) and Article 199 (2) where both the 
expression are used indicating thereby that they are not the same. It has further 
been held that: It would therefore, appear that a provision for the imposition of 
licence fee does not necessarily lead to the conclusion that the fee must be only for 
services rendered.“ 
Same view was taken : (g) P. Kannadsan etc. vs. State of Tamilnadu & other etc. 
J.T. 1996 (7) SC 16. It has been observed that : 
"Even  in  the  matter  of  fees,  it  is  not  necessary  that  element  of  quid  pro  quo 
should  be  established  in  each  and  every  case,  for  it  is  well  settled  that  fees  can be 
both  regulatory  and  compensatory  and  that  in  the  case  of  regulatory  fee$,  the 
element of quid pro quo is totally irrelevant.” 
(h) Vam Organic Chemicals Limited and Anr. vs. State of U.P. & Ors. (JT 
1997 (1) SC 625)- 
"..........  has  approved  that  there  is a distinction between the fees charged for 
licence.  i.e.  regulatory fees and the fees for the services rendered as compensatory. 
It  approved  the  view  that  in  case  of  regulatory  fees  like  the  licence  fees,  existence 
of quid pro quo is not necessary. “ 
In the connection I may also refer to the recent decision of Hon'ble The 
Apex Court in (1999) 2 Supreme Court Cases 274- Secunderabad Hyderabad 
5 
 
Hotel Owners Association & Ors. vs. Hyderabad Municipal Corporation, 
Hyderabad & another, (relevant paras 9, 10, 11 and 12, page 282, 283 & 284). 
"9.  It  is,  by  now,  well  settled  that  a  licence  fee  may  be  either  regulatory  or 
compensatory.  When  a  fee  is  charged  for  rendering  specific  services,  a  certain 
element  of  quit  pro  quo  must  be  there  between  the  services  rendered  and  the  fee 
charged  so  that  the  licence  fee  is  commensurate  with  the  cost  of  rendering  the 
service  although  exact  arithmetical  equivalence  is  not  expected.  However,  this  is 
not  the  only  kind  of  fee  which  can  be  charged.  Licence  fee  can  also  be  regulatory 
when  the  activities  for  which  a  licence  is  given  required  to  be  regulated  or 
controlled  The  fee  which  is  charged  for  regulation  for  such  activity  would  be 
validly  classifiable  as  a  fee  and  not  a  tax  although  no  service  is  rendered.  An 
element  of  quid  pro  quo  for  the  levy of such fees is not required although such fees 
cannot be excessive. 
10.  In  the  case  of  Commr.  H.R.E.  Vs.  Sri  Lakshmindra  Thirlha  Swamiar  of 
Sri Shirir Mutt one of the earliest case dealing with the question whether the levy is 
a  fee  or  a  tax,  this  Court  held  that  the  Constitution  and,  in  particular;  the 
legislative  entries  in  Schedule  VII  of  the  Constitution  make  a  clear  distinction 
between  a tax and a fee. This Court reproduced the definition of what “tax" means, 
given  by  Latham,  C.J.  of  the  High  Court  of  Australia  in  Matthews  vs.  Chicory 
Marketing  Board  (CLR  at  p 276) (See at p. l040). “A tax" according to the learned 
Chief  Justice,  'tis  a  compulsory  extraction  of  money  by  public  authority  for  public 
purposes  enforceable  by  law  and  is  not  payment  for  services  rendered".  A  fee,  on 
the  other  hand,  is  generally  defined  to  be  a  charge  for  a  special services rendered 
to  individuals  by  some  governmental  agency.  The  amount of fee levied is supposed 
to  be  based  on  the  expenses  incurred  by  the  Government  in  rendering  the  service, 
though  is  many  cases,  the  costs  are  arbitrarily  assessed.  Ordinarily,  the  fees  are 
uniform  and  no  account  is  taken  of  the  varying  abilities  of  different  recipients  to 
pay.  These  are  undoubtedly  some  of  the  general  characteristics,  as  far  may  be,  of 
various  kinds  of  fees.  It  is  not  possible  to  formulate  a  definition  that  would  be 
applicable to all cases. The Court then observed: (at page 1042) 
"The  distinction  between  a  tax  an  a  fee  lies primarily in the fact that a tax is 
levied  as  a  part  of  the  common  burden,  while  a  fee  is  a  payment  for  a  special 
advantage,  as  for  example,  in  the  case  of  registration  fee  for  documents  or 
marriage  licences,  is  secondary  to  the  primary  motive  of  regulation  in  the  public 
interest. 
There is really no generic difference between a tax and a fee and as said by 
Seligman, the taxing power of a State may f manifest itself in a 
6 
 
three different forms known respectively as special assessments, fees and taxes. 
Our Constitution has, for legislative purposes, made a distinction between a tax 
and a fee. 11. 1n the case of Corpn. of Calcutta vs. Liberty Cinema (SCR at p. 
483), this court after referring to the constitutional provisions making a distinction 
between a fee and a tax also went on to say that in our Constitution, fees for 
licence and fees for services rendered are contemplated as different kinds of levy. 
The former is not intended to be a fee for services rendered. This is apparent from 
a consideration of Article 110 (2) and Article 199 (2) where both the expression 
are used indicating thereby that they are not the same. In other words, a distinction 
was made between fees for services rendered and fees which are regulatory. In 
India Mica Micanite Industries vs. State of Bihar (SCC at p. 241: SCR at p. 324) 
Om Prakash Agarwal vs. Giri Raj Kishore and Municipal Council, Madurai vs. R. 
Narayanan (SCC pp. 503 to 505: SCR at pp. 339 to 340), The court had considered 
a fee which was charged for services rendered. In all these cases, the Court 
observed that when a fee is charged for services rendered, an element of quid pro 
quo is necessary and there has to be a co-relationship of a general character 
between the cost of rendering such service and the fee charged. A number of other 
decisions were also cited in this connection. The position in respect of fees for 
services rendered is summed up in the case of Krishi Upaj Mandi Samiti vs. Orient 
Paper & Industries Ltd. (SCC in para 21). 
12.  In  the  present  case,  however,  the  fees  charged  are  not  just  for  services 
rendered  but  they  also  have  a  large  element  of  a  regulatory  fee  levied  for  the 
purpose  of  monitoring  the  activity  of  the  licensees  to  ensure  that  they  comply  with 
the  terms  and  conditions  of  the  licence.  Dealing  with  such  regulatory  fees,  this 
Court  in  Vam  Organic  Chemicals  Ltd.  vs.  State  of  U.P.  (SCC  at  p.  726),  observed 
that  in  the  case  of  regulatory  fee,  no  quid  pro  quo  was  necessary  but  such  fee 
should  not  be  excessive.  The  same  distinction  between  regulatory  and 
compensatory  fees  has  been  made  in  the  case  of  P.  Kannadasan  vs.  State  of  T.N., 
(SCC  in  para  36)  as  well  as  State  of  Tripura  vs.  Sudhir  Ranjan  Nath  (SCC  at  p. 
673)." 
In  this  connection,  for  drafting  the  legislative  Bills  regarding  fiscal 
legislation  for  imposition  of  tax,  one  has  to  keep  in  mind  the  provisions  of  Article 
110  and  Article  199  of  the  Constitution  of  India  which  was  interpreted by Hon'ble 
Apex  Court  in  Kewal  Krishan  Puri  and  another  vs.  State  of  Punjab,  AIR  1980  SC 
1008 (at page 1015, para 7). 
"7.  Clause  (2)  of  Article  110  and  clause  (2)  of  Article  199  of  the 
Constitution,  the  former  occurring  in  the  Chapter  of  Parliament  and  the  latter  in 
relation to the State Legislature are in identical terms as follows:- 
7 
 
 "A  bill  shall  not  be  deemed  to  be  a  Money  Bill  by  reason  only  that  it 
provides  .........  for  the  demand  or  payment  of  fees  for  .........  licences  or  fees  for 
services rendered.......... " 
The Constitution, therefore, clearly draws a distinction between the 
imposition of a tax by a Money bill and the impost of fees by way of other kind of 
Bill. So also in the Seventh Schedule both in the List I and List II a distinction has 
been maintained in relation to the entries of tax and fees. In the Union List entries 
82 to 92A relate to taxes and duties and entry 96 carves out the legislative field for 
fees in respect of any of the matters in the said list except the fees taken '2' in any 
court. Similarly in the State List entries relating to fees are entries 46 to 63 and 
entry 66 provides for fees in respect of any of the matters in List II but not 
including fees taken in any Court. Entry relating to fees in List III in entry 97. Our 
Constitution, therefore, recognizes a different and distinct connotation between 
taxes and fees." The Constitution Bench decision of the Supreme Court in the case 
of Synthetics and Chemicals Ltd. and others vs. State of U.P. and others (1990) I 
SCC 109 (at Page 165, para 109), has considered the legislative competence of the 
State legislature regarding levy of fee in respect of denatured spirit unfit for human 
consumption. Even though the State has the exclusive privilege in dealing with the 
alcoholic liquor but if the revenue earned a substantial, it will not be justifiable as 
fee which is levied for carrying on the business of such alcoholic liquor." 
In para 109 it has been held that - 
"These  questions  about  the  privilege  and  the  doctrine  of  police  powers  in 
fact  would  be  material  to  be considered when the question about the various levies 
imposed  by  the  State  in  respect  of  alcoholic  beverages  is  considered  and  so  far as 
the  present cases are concerned which, pertain to, only alcoholic liquors which are 
not  for  human,  consumption  that  is  which  are  meant  for  industrial  use,  the  only 
question will be as to whether the State could justify the respective levies under any 
of  the  entries in List II The main theme of the arguments on behalf of the States has 
been  that  they  have  imposed  levies  because  the  alcohol  which  is  not  for  human 
consumption  is a commodity which could be easily converted into alcoholic liquors 
for  human  consumption  and  therefore  the  levies  have  been  imposed  assuming that 
it  is  for  human  consumption  or  in  other  words  the  contention  has  been  that  these 
levies  have  been  imposed  in  order  to  prevent  the  conversion  of  alcoholic  liquors 
which  are  not  for  human  consumption  to  those  which  are  for human consumption. 
A  contention  therefore  was  suggested  that  these  levies  could  be  justified  as 
regulatory fees although it was frankly conceded that 
8 
 
although the revenue earned out of it is substantial and may not be justifiable as 
fees but have been imposed and it was therefore that the main themes on behalf of 
the respondents has been based on the doctrine of the privilege of the State to trade 
in these commodities as that trade is considered to be obnoxious and injurious to 
public health. " Hon'ble The Apex Court was pleased to hold that such levy must 
find a justification as tax under any of the taxing entries in the legislative list. 
In  view  of  the  legal  position  that  the  fee  is  compensatory  in  nature  and  not 
regulatory  as  in  the  case  of  market  fee  levied  by  various  Mandi  Samitis  etc.  the 
element  of  quid  pro  quo  will  still  be  required.  In  this  connection,  I  may  refer  to 
para  36 of the judgment of the Hon’ble Supreme Court in the case of Bhagwan Das 
Sood  vs.  State  of  Himanchal  Pradesh  (1997)  1  Supreme  Court  Cases  227  at  page 
239 and 240: 
"36. Levy of market fee being essentially a fee and not a tax, such imposition 
of levy of market fee necessarily inheres in it the essence of quid pro quo between 
the fees levied and services returned to the payer of such fees. What should be 
extent of services returned to the payers of levy of market fees so as to keep such 
levy of fees within the bounds of accepted principle of fee involving existence of 
reasonable quid pro quo has been a vexed question agitated before various High 
Courts including this Court from time to time. Some of the decisions of this Court 
on this question have been indicated. The legal position regarding constitutional 
validity of levy of market fee may be summarised as follows: (i) Existence of quid 
pro quo is essential for retaining the character 
of 'fee' in the matter of levy of market fee. (ii) Such quid pro quo is not to be 
reckoned with any mathematical precision with reference to quantum of fees 
realized by imposition of levy and the percentage of such fees spend for 
establishing market yards, construction of various infrastructures etc. and 
providing various amenities as envisage under the Marketing Act and the Rules 
framed there under for effective implementation of aims and objectives under the 
Act. (iii) The service to the rendered to the payers of market fee must be real 
and not illusory (iv) Such service must have an objective basis and have a 
direct link 
and not be remote its effect. (v) It is not necessary that imposition of levy is 
to be effected only on establishment of principal and sub market yards by 
completing the infrastructures required for such establishment of market and sub 
market yards. Such construction being time consuming and 
9 
 
expenditure-oriented. It will be sufficient to justify valid imposition of levy if it is 
demonstrable that after notifying market area, effective steps not in contemplation 
but in reality have been taken to identify market and sub-market yards and 
schemes for establishment of such market or sub- market yards have in fact been 
put to action and the market fees levies and realized are being ploughed back for 
the advancement of the purpose for which market fees have been levied and 
realized. (vi) In deciding the question of rendering of a real and not illusory' 
services in discharging the obligation emanating from quid pro quo, to levy of 
market fee, no strait-jacket formula can be evolved. Fact 5ituation in the matter of 
establishment of principal and sub- market yards and the practical feasibility of 
construction of infrastructures, roads, pathways etc. for establishment of such 
market yards within a time frame and in the light of financial constraints is bound 
to vary depending on various factors including imponderables. It is therefore, 
essentially necessary to take a pragmatic approach to the problems associated 
with establishing market and sub-market yards with necessary infrastructures etc. 
and accompanying facilities and amenities to be made available to traders and 
producers coming to such yards, in order to decide whether concrete steps have 
been translated into action with reasonable sincerity in implementing the schemes 
envisaged under the Marketing Act and the Rules framed there under. " In view of 
Article 265 of the Constitution of India no tax can be levied or collected except by 
authority of law. Law in this context means an Act of legislature and not an 
executive order or a rule without express statutory authority. An executive order, 
executive instruction or custom cannot justify an imposition of tax. Where the 
legislature has a power to levy a tax, it may with retrospective effect validate an 
illegal assessment of tax made by the executive without proper legislative sanction 
but it cannot give retrospective operation to a tax in respect of an area over with it 
had no territorial jurisdiction during the period of retrospective operation. 
In  the  end,  I  will  repeat  the  words  of  Hon'ble  The  Apex  Court  while 
classifying  the  distinction  between  the  tax  an  the  fee  in  para  21  of the judgment in 
the  case  of  Krishi  Upaj  Mandi  Samiti  vs.  Orient  Paper  &  Industries  Ltd.,  (1995)  1 
Supreme Court Cases 265, subject to what has been said above. 
“21. Thus what emerges from the conspectus of the aforesaid decisions is as 
follows: 
10 
 
(1) Though levying of fee is only a particular form of the exercise of the taxing 
power of the State, our Constitution has placed fee under a separate category for 
purposes of legislation. At the end of each one of the three Legislative Lists, it has 
given power to the particular legislature to legislate on the imposition of fee in 
respect of everyone of the items dealt with in the list itself, except fees taken in 
Court. (2) The tax is a compulsory extraction of money by public authority for 
public purposes enforceable by laws and is not payment for services rendered. 
There is no quid pro" quo between the tax payer and the public authority. It is a 
part of the common burden and the quantum of imposition upon the tax payer 
depends generally upon his capacity to pay. (3) Fee is a charge for a special 
service rendered to individuals or a class by some governmental agency. The 
amount of fee levied is supposed to be based on the expenses incurred by the 
Government in rendering the service though in some cases the costs are arbitrarily 
assessed. Ordinarily, the fees are uniform and no account is taken of the varying 
abilities of different recipients to pay. These are various kinds of fees and it is not 
possible to formulate a definition that would be applicable to all cases. (4) The 
element of compulsion or coerciveness is present in all kinds of impositions though 
in different degrees and it is not totally absent in fees. Hence it cannot be the sole 
or even a 1hat~rial criterion for distinguishing a tax from fee. Compulsion lies in 
the fact that payment is enforceable bylaw against an individual in spite of his 
unwillingness or want of consent and this element is present in taxes as well as in 
fees. (5) The distinction between a tax and fee lies primarily in the fact that a tax is 
levied as a part of the common burden while a fee is a payment for a 'special 
benefit or privilege. Fees confer a special capacity although the special advantage 
is secondary to the primary motive of regulation in the public interest. Public 
interest seems to be at the basis of all imposition but in a fee it is some special 
benefit which is conferred and accruing which is the reason for imposition of the 
levy. In the case of a tax, the particular advantage it is exists at all is an incidental 
result of State action. A fee is a sort of return or consideration for services 
rendered and hence it is primarily necessary that the levy of fee should on the face 
of the legislative provision be correlated to the expenses incurred by Government 
in rendering the services. As indicated in Article 110 (2) of the Constitution 
ordinarily there are two classes of cases where 
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Government imposes fees upon persons. The first is of grant of permission or and 
the second for services rendered. In the first class of cases, the cost incurred by the 
Government for granting of permission or privilege may be very small and the 
amount of imposition levied is based not necessarily upon the costs incurred by the 
Government but upon the benefit that the individual receives. In such cases, the tax 
element is predominant. It the money paid by privilege-holders goes entirely for 
the expenses of matters of general public utility, the fee cannot but be regarded as 
a tax. In the other class of cases, the government does some positive work for the 
benefit of persons and the money is taken as the return for the work done or 
services rendered. (6) There is really no generic difference between tax and fee 
and the taxing power of the State may manifest itself in three different forms, viz. 
special assessments, fees and taxes. Whether a case is tax or fee, would depend 
upon the facts of each cases. If in the guise of fee, the legislature imposes a tax it is 
for the Court on a scrutiny of the scheme of the levy, to determine its real 
character. In determining whether the levy is a fee, the true test must be whether it 
primary and essential purpose is to render specific services to a specific area or 
classes. It is of no consequence that the State may ultimately and indirectly be 
benefited by it. The amount of the levy must depend upon the extent of the services 
sought to be rendered and if they are proportionate, it would be unreasonable to 
say that since the impost is high it must be a tax. Nor can be method prescribed by 
the legislature for recovering the levy by itself alter its character. The method is a 
matter of convenience and though relevant, has to be tests in the light of other 
relevant circumstances. (7) It is not a postulate of a fee that it must have relation to 
the actual service rendered. However, the rendering of service has to be 
established. The service, further; cannot be remote. The test of quid pro quo is not 
to be satisfied with close or proximate relationship in all kinds if fees, a good and 
substantial portion of the fee must, however; be shown to be expended for the 
purpose for which the fee is levied. It is not necessary to confer the whole of the 
benefit on the payers of the fee but some special benefit must be conferred on them 
which has a direct and reasonable correlation to the fee. While conferring some 
special benefits on the payers of the fees, it is permissible to render service in the 
general interest of all concerned. The element of quid pro quo is not possible or 
even necessary to be established with arithmetical exactitude. But it must be 
established broadly and reasonably that the amount is being spent for rendering 
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services to those on whom the burden of the fee falls. There is no postulate of a fee 
that it must have a direct relation to the actual services rendered by the authorities 
to each individual to obtain the benefit of the service. The element of qutd pro quo 
in the strict sense is not always a sine quo non-for a fee. The element of quid pro 
quo is not necessarily absent in every tax. It is enough if there is a broad, 
reasonable and general co- relationship between the levy and the resultant benefit 
to the class of people on which the fee is levied though no single payer of the fee 
receives direct or personal benefit from those services. It is immaterial that the 
general public may also be benefited from some of the services if the primary 
service intended is for the payers of the fees. (8) Absence of uniformity is not a 
criterion on which alone it can be said that the levy is of the nature of a tax. The 
legislature has power to enact appropriate retrospective legislation declaring 
levies as fees by denuding them of -the characteristics of tax. (9) It is not necessary 
that the amount of fees collected by the Government should be kept separately. In 
view of the provisions of Article 266, all amounts received by the Governments 
have to be credited to the Consolidated Funds and to the public accounts of the 
respective Governments " 
*** 
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